The Ethical Dilemma Associated With Accounting For Employee Benefits

Of all organizational issues or problems, ethical dilemmas are the most difficult ones to handle or deal with. Issues arise in employed, remuneration and benefits, industrial relations and health and safety.

Types of Employee Benefits

Short Tern Benefits S

• Wages & salaries
• Paid annual leave/ sick leave
• Profit Sharing & Bonuses
• Non-monetary benefits such as motor vehicles, housing & medical Aid.

Other Long Term Befits

• Long service awards
• Long term paid absences
• Annual Leave
• Disability Benefits.

Termination

• Benefits paid as a result of termination of employment.

Ethical Dilemmas Associated with employee Benefits

Poor Company Performance

Lack of worker advantages results in demotivated employees, which can retard performance and hamper recruitment; but perks do not directly drive growth. Not offering benefits can damage business performance and affect the ability to compete for recruits, and perhaps chock off access to key talent; but offering them does not directly drive business growth. As with all business and human capital strategies, what and how you offer benefits depends on your particular workforce’s business drivers.

Poor Business Plan

Initial Plan did not forecast market challenges (SWOT analysis), Selecting appropriate compensation and benefits policies is a critical challenge for companies of all sizes. But never are the challenges more difficult or the stakes higher than when a company first takes shape. Start-ups must strike a delicate balance. Unrealistically low levels of cash compensation weaken their ability to attract quality managers. Unrealistically high levels of cash compensation can turn off potential investors and, in extreme cases, threaten the solvency of the business. No startup can match the cradle-to-grave benefits offered by employers like Bank of Namibia, although young companies may have to attract executives from these giant companies. It is also true, however, that the executives most attracted to startup opportunities may be people for whom standard benefit packages are relatively unimportant. Startup companies have special opportunities for creativity and customization with employee benefits. The goal should not be to come as close to what Bank of Namibia offers without going broke, but to devise low-cost, innovative programs that meet the needs of a small employee corps.

Certain basic needs must be met. Group life insurance is important, although coverage levels should start small and increase as the company gets stronger. Group medical is also essential, although there are many ways to limit its cost. Setting higher-than-average deductibles lowers employer premiums (the deductibles can be adjusted downward as financial stability improves). Self-insuring smaller claims also conserves cash. The list of traditional employee benefits doesn’t have to stop here but it probably should. Most companies should not adopt long-term disability coverage, dental plans, child-care assistance, even retirement plans, until they are well beyond the startup phase. This is a difficult reality for many founders to accept, especially those who have broken from larger companies with generous benefit programs. But any program has costs — and costs of any kind are a critical worry for a new company trying to move from the red into the black. Indeed, one startup in the business of developing and operating progressive child-care centers wisely decided to wait for greater financial stability before offering its own employees child-care benefits.

Many young companies underestimate the money and time it takes just to administer benefit programs, let alone fund them. Employee benefits do not run on automatic pilot. While the vice president of marketing watches marketing, the finance manager keeps tabs on finances, and the managing director snuffs out the fires that always threaten to engulf a young company, who is left to mind the personnel store? If a substantial benefits program is in place, someone has to handle the day-to-day administrative details and update the program as the accounting and tax rules change. The best strategy is to keep benefits modest at first and make them more comprehensive as the company moves toward profitability.

Certainly, Thai food is no substitute for a generous pension. But benefits that promote a creative and energetic office environment may matter more to employees than savings plans whose impact may not be felt for decades. Deciding on compensation policies for startup companies means making tough choices. There is an inevitable temptation, as a company shows its first signs of growth and financial stability, to enlarge salaries and benefits toward market levels. You should resist these temptations. As your company heads toward maturity, so can your compensation and benefits programs. But the wisest approach is to go slowly, to make enhancements incrementally, and to be aware at all times of the cash flow, taxation, and accounting implications of the choices you face.

Globalization

Changes in markets and business fails to keep up, with the latest trends. Globalization also determines the migration of workforce. This is usually the case of unskilled workers, in comparison with white collar jobs. The process of globalization makes it easier for individuals to look for better paid jobs in other countries. Companies also have the possibility to hire employees from other countries that work for smaller salaries, or to relocate their production to countries where workers require smaller salaries. This situation determines an increased competition on the workforce market in richer countries where individuals come in order to find better paid jobs. Increased demand on the labor market means that people looking for jobs are likely to accept jobs with smaller salaries, and with a reduced offer of compensation and benefits. Basically, the compensation and benefits strategy only depends on the company developing it. Companies are aware of this situation and offer smaller compensation and benefits to the people they want to hire. This is because they know that

Conflict of Interest

Hiring a family member, someone recommended by a friend or a top executive for a certain position, while the incumbent may not have the necessary skills and experience and inflate their remuneration package. Pay out more incentives to the top management, long term compensation and incentives plans are designed in consultation with the CEO or an external consultant. While deciding upon the payment there’s pressure on favouring the interests of the highest management as compared to it of different staff and stakeholders.

Self Interest

Were an employee benefit from a fraudulent activity or transaction, the employee could inflate their salary or wage, go on leave without having applied for leave, thus they keep accumulating leave days, doing personal activities during office hours.

Human Feelings

A personnel may be tempted not to report any violations in terms of employee benefits due to the consequence of such an act. Maybe the negative publicity will lead to the decline of the company, an employee may lose his or her job as a result

Pressure From Management

Management may push for higher salary increments than the company can, to take care of their personal agendas. Management may also push for bonus pay out, in the long run this would lead to the downfall of the company Why employers are gradually drifting away from the defined benefit plan. Traditionally defined benefit pension plans are gradually losing their dominance in the occupational pension systems of many countries, over the past few decades there has been a gradual shift towards defined contribution pension. The defined pensions are extremely expensive on the employer which is why most companies are, or have switched, to a defined contribution plan instead. The biggest risk with having a non-government defined plan is that there’s the possibility of the pension not being funded properly. Another disadvantage is that some defined benefit plans only allow a portion of the pension to be transferred to a spouse if the beneficiary passes away.

Accrued benefits in defined benefit plans do not depend on financial markets returns, except in extreme circumstances that correspond to an insolvent defined benefit plan. Benefits in defined contributions plans are tied directly to financial market returns. Some analyst have suggested that defined contribution plans expose prospective retires to greater risk than defined benefit plans precisely because of this financial market link. Pension benefits in defined benefit plans tend to be back loaded, so that workers who change employers can lose a great portion of expected benefits if these are not transferrable from one employer to another. Such a shift also reallocates investment risk within the financial system from the corporate to the household sector, which may have implications for financial stability.

References:

1. http://www.accountingtools.com/dictionary-short-term-employee